Dead Peasant Insurance Ethics

A recent article in the Los Angeles Times has brought company owned life insurance (COLI) back into the limelight. COLI, or dead peasant insurance, occurs when a company buys life insurance on an employee, typically a rank-and-file employee. When the employee dies, the company receives the death benefit from the insurance. In this case, the LA Times took exception when its competitor, the Orange County Register, asked its employees to agree to these life insurance policies, with the death benefit being used to partially fund the company's pension fund. Ethical questions may arise when these policies are issued. For example, if a company has a COLI policy on an employee, perhaps the company will be more willing to scrimp on safety protocols. While some argue that COLI policies are unethical, very few argue that key person life insurance is unethical. A key person policy is a company owned policy on a key employee such as a CEO, whose death would impact the company in a negative manner.